$Top Glove (BVA.SG)$ Shares of Top Glove Corporation Bhd may...

Shares of Top Glove Corporation Bhd may have little upside as valuations stretched with the recent rally in share prices while earnings outlook remained clouded by both costs and sales concerns.

Top Glove was little changed at RM1.33 on Mon after the glove manufacturer reported its first profitable quarter in two years. The results, however, were below consensus estimates after excluding extraordinary gains.

"We believe that current valuations have largely priced in the stock's improved outlook and better earnings prospects," said CIMB Securities, which downgraded the stock to 'hold' from 'buy'.

Shares of Top Glove have surged more than 50% so far this year amid strong interest as investors bet on potential shift in US demand to Malaysian gloves due to the impending tariff increase on Chinese glove imports.

Analysts are also bearish with nine 'sell', seven 'hold', and five 'buy' calls following latest revisions. The consensus 12-month target price is RM1.16, according to Bloomberg, implying a 13% decline from current price.

For MIDF Amanah Investment Bank, Top Glove's earnings recovery pace appears slower compared to its industry peers, which have already posted several profitable quarters.

Further, the impact from the rise in sales to the US may also be "less profound" than on its rivals while production costs remained elevated, the research house cautioned.

Top Glove reported that it has returned to the black with a net profit of RM5.47 million for its first quarter ended Nov 30, 2024 (1QFY2025). Among others, the company reported RM3 million in foreign exchange gain on foreign currency loan and RM3.1 million in fair value gains.